Pepco Renewable Energy – Brief description: Exelon is a large, poor utility company that is struggling with unprofitable nuclear power plants. He wants to buy a smaller, better utility company, Pepco, to help Pepco’s taxpayers pay for this unprofitable nuclear power plant. Taxpayers and activists in the Pepco service area, especially the Washington area, are right to see this as bad business. Exelon argued otherwise, but now a new report from an independent think tank has almost shattered the company’s case.
Long version: … Hey, where are you going? Come back. A hot political story of rogue grassroots activists fighting for a corporate deal that everyone thought was inevitable! It also contains important lessons for today’s power market. So join me and you will change the way you think about utility mergers!
Pepco Renewable Energy
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Pepco Holdings Mission, Vision & Values
Exelon is one of the largest utility holding companies in the United States. This is because a “holding company” is not actually a utility company, but rather a company that owns multiple utilities. The company-owned utilities operate primarily in the PJM area, the Mid-Atlantic Coast, below New York, above North Carolina, and parts of the Midwest. (As explained in this post, the reorganized regions of the U.S. power grid are divided into regions, each of which is under the control of a regional transmission agency or RTO, which operates its own wholesale electricity market.)
In a reconfigured power market like PJM, utilities are no longer “vertically integrated”. That is, there is no more power generation (power plant) and distribution (grid). There are utility companies that manage the distribution network and provide electricity to consumers. They buy electricity from the individual companies that own the power plants (sometimes incorrectly called utilities). Exelon also owns electricity generation primarily in the form of the Exelon Generation Company and three distribution companies that serve approximately 6.6 million people in Pennsylvania, Maryland and Illinois.
Exelon’s power generation facilities are dominated by nuclear power, with 81% of Exelon’s total electricity in 2013 coming from nuclear power. As you know, nuclear power plants don’t work well these days. They face competitive pressures from cheap natural gas, the growth of renewable energy and stagnant electricity demand. Exeleon’s nuclear power plant revenues have declined (according to one estimate, 40% from pre-crisis levels), and are more volatile and unpredictable. This is a concern for companies accustomed to high and stable returns.
Exelon Generation Company provides approximately 60% of Exelon’s revenue. Now things are going wrong and the parent company needs a more stable source of revenue. So, like many large U.S. utilities, Exelon seeks to shift its resources to a small, stable and predictable distribution company with a small profit because the Public Utilities Commission (PUC) sets rates for a specific period of time. Time.
Pepco Exec: Transmission Work Progresses Across Company’s Service Territory
Investing your money in a regulated distribution company is a form of insurance against low wholesale electricity prices. Also, if wholesale electricity prices fall, ownership of the distribution company allows holding companies such as Exelon to cover the shortfall by raising their customers’ rates.
Ok now it’s so good We know that Exelon wants more distribution companies to support its declining stock price and struggling nuclear fleet.
So he offered to acquire Pepco Holdings, a company that owns three distribution companies that serve customers in Virginia, New Jersey, Maryland, Delaware and the District of Columbia. In fact, Exelon told Pepco
According to the aforementioned think tank report, this “presents a 20% increase over the actual value of Pepco’s stock right before the announcement of the merger, or a windfall of $1.1 billion for Pepco shareholders. Pepco’s stock price was already inflated relative to Pepco’s net book value.” .Pepco’s net worth is only $4.3 billion.”
D.c. Mayor Rejects Pepco Exelon Plan; $6.8 Billion Merger Appears Dead
An offer worth more than $2 billion more than Pepco’s assets may seem hopeless. — But Pepco shareholders don’t ask questions. They love to do this. Because that means huge amounts of money falling over their heads.
, However. The merger must be approved by the PUC (and the Federal Energy Regulatory Commission) in each state where Pepco has a customer. So far, it has been approved by FERC, Virginia and New Jersey. This leaves Delaware, the District of Columbia, and the Maryland PUC.
This transaction will help stabilize Exelon’s earnings. This will enrich Pepco’s shareholders. Court question: Is a merger a good idea for Pepco?
Now the DC consumer advocacy group, many of whom have come together under the PowerDC banner, argues otherwise. You can read great stories and report on exchanges on UtilityDive (if you are interested in the utility you should bookmark it). I must say when reading it that every claim made by Exelon’s agent to defend the deal triggered my bullshit detector.
Resilient Power Project Case Study
But I’m just a nerd. Fortunately, some qualified researchers have provided a more in-depth analysis. A report from the Institute for Energy Economics and Financial Analysis argues that the merger will not benefit DC taxpayers in the long run for three reasons. (Some causes also apply to Pepco taxpayers in other states, but for political reasons, the fight centers on the District of Columbia.)
Exelon stock is not at its best (see chart on the right). It had to cut its shareholder dividend by 40% in 2013 and was the only major company to do so between 2010 and 2013. Moody’s downgraded its manufacturing rating. The decline in operating profit was faster than the industry average.
All of this, and the massive excess cash it provides to Pepco shareholders, will put tremendous pressure on Exelon to generate as much revenue as possible from Pepco. And I promise not to do the opposite.
In the proposed acquisition, Pepco Exelon made no bid promises. Exelon rejected a request from the Office of the People’s Congress of the District of Columbia that it would not demand a rate increase for five years after purchase.
District Should Reject Exelon Pepco Merger, Energy Think Tank Says In Report
DC has a big green plan. There are renewable energy standards that target 20% renewables by 2020 and 2.4% solar by 2023 (this will require massive expansion of rooftop solar). The District of Columbia’s official Urban Sustainability Plan calls for a 50% reduction in renewable energy, a 50% reduction in energy use and a fivefold increase in green jobs by 2032. These are all ambitious goals that require coordinated efforts over decades.
Meanwhile, Exelon is one of the worst companies in terms of sustainability. He opposes solar measurements, opposes federal wind taxes that compete with nuclear power, opposes various clean energy initiatives in Maryland, and supports endorsements and subsidies for nuclear power plants. Renewable energy drives down wholesale electricity prices, and Exelon needs to keep wholesale electricity prices high to sustain its nuclear arsenal. This is a fundamental tension that will not go away even if Exelon supports several renewable energy projects. (Every time Exelon comes up with this, she mentions the same Dunbar High School solar project. Can’t you at least come up with another project?)
Pepco isn’t exactly the champion of clean energy, but it’s starting to move in the right direction with DC, which makes up a significant portion of its fee base. DC PUC could impose significant fines on Pepco for the company.
However, DC is a relatively small part of Exelon’s rate base. DC consumer advocates and DC PUC will have far less impact on the overall direction of the company than Pepco. Due to Exelon’s sheer scale and complexity, individual PUCs are difficult to understand and have far less effective impact. There are several examples where large holdings have taken over small holdings and have created hell for regulators (see report for details).
I Got A Pepco Bill That’s Over Double What I Usually Pay”
The company promised that Pepco would retain the employee for at least two years, but no promises were made after that. He promised reliability, but D.C. Less than what the law requires. The company provided a “customer investment fund,” a payout to Pepco taxpayers, equivalent to a one-time loan of approximately $53 per customer (small compared to the rewards awaiting Pepco shareholders). offset long-term interest rate hikes.
And finally, he promised to “fence-in” Pepco, allegedly protecting the small company from attacks on its parent company Exelon’s resources. According to the IEEFA, “There has been no independent assessment of the fence facility and no independent opinion has been expressed as to its integrity and ability to withstand enemy attacks.” Also, the restrictions do not protect Pepco taxpayers from higher tax rates. As you may recall, Exelon did not explicitly promise to avoid this.
Pepco taxpayers must submit comments by the end of March. Everything will be completed and decided by April 1st.
Okay, I’ve probably tried enough of your patience. But let’s step back a bit and look at some of the bigger trends/lessons for this.
By Allowing The Pepco Exelon Merger To Proceed, Utility Regulators In D.c. Are Assuring Higher Bills For Ratepayers
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